Business Context and Reporting Period
This Form 8-K, filed on March 15, 2021 (with supplemental information speaking as of April 8, 2021), concerns Tilray, Inc. and its proposed merger with Aphria Inc. via an Arrangement Agreement. The filing serves to update and supplement the definitive joint proxy statement/circular regarding a special meeting of Tilray stockholders scheduled for April 16, 2021. The primary purpose is to disclose supplemental information in response to seven shareholder lawsuits challenging the transaction, which Tilray denies are meritorious but is addressing to avoid litigation disruption.
Key Financial Metrics and Projections
The filing does not report historical financial results for a specific period but provides unaudited prospective financial information and valuation metrics used by financial advisors (Jefferies, Cowen, and Imperial) to support the transaction.
Valuation and Market Metrics (as of Dec 14, 2020)
- Tilray Market Cap: US$1,219 million; Enterprise Value: US$1,388 million.
- Aphria Market Cap: US$2,537 million; Enterprise Value: US$2,816 million.
- Total Debt: Tilray US$341 million; Aphria US$480 million.
- Implied Ownership Split: Based on trading prices, the exchange ratio implied 32.5% ownership for Tilray and 67.5% for Aphria.
Pro Forma Combined Company Projections (US$ in millions)
| Metric | 2021 | 2022 | 2023 |
|---|---|---|---|
| Revenue | $1,010 | $1,316 | $1,563 |
| Adjusted EBITDA | $202 | $324 | $422 |
| Unlevered Free Cash Flow | $96 | $164 | $324 |
Estimated Synergies
Management estimates annual gross pre-tax cost synergies of $32 million (2021), $77 million (2022), and $77 million (2023), resulting in a net synergy impact of $25 million, $73 million, and $77 million, respectively.
Material Changes and Disclosures
This filing amends the Proxy Statement/Circular with the following material updates:
- Transaction History: Disclosed a revised draft term sheet from September 15, 2020, which initially contemplated a 62.5% / 37.5% equity split (Aphria/Tilray) and a condition requiring Tilray to secure commitments from convertible noteholders to exchange US$200 million of notes into equity.
- Financial Projections: Updated tables for Aphria and Tilray stand-alone projections and combined pro forma projections used by advisors Jefferies, Cowen, and Imperial.
- Comparable Company Analysis: Provided detailed tables of EV/Revenue and EV/EBITDA multiples for selected Canadian cannabis producers, U.S. multi-state operators, and alcohol/tobacco companies.
- Precedent Transactions: Listed selected cannabis industry acquisitions since 2018, including transaction sizes and revenue multiples.
Guidance, Risks, and Contingencies
Shareholder Litigation: Seven lawsuits have been filed by alleged Tilray stockholders in U.S. District Courts (Southern and Eastern Districts of New York, and District of Delaware). Tilray denies any violation of laws or breach of duties, asserting the suits are without merit. The supplemental disclosures are provided solely to eliminate litigation burden and avoid disruption to the Arrangement.
Forward-Looking Statements: The filing contains extensive forward-looking statements regarding the strategic benefits, synergies, and future financial performance of the combined company. These are subject to significant risks, including the ability to obtain shareholder and regulatory approvals, integration challenges, and market conditions related to the COVID-19 crisis.
Management Roles: As of the filing date, discussions regarding management roles for Tilray executives in the Combined Company were ongoing with no definitive agreements reached. David F. Clanachan was designated to join the Combined Company's board.
Investor Verification Checklist
- Verify the status of the seven shareholder lawsuits and any potential impact on the April 16, 2021 special meeting.
- Review the full Proxy Statement/Circular for the complete list of risk factors and the detailed assumptions behind the financial projections.
- Confirm the final exchange ratio and ownership split, noting the variance between the initial draft term sheet (62.5/37.5) and the implied ownership based on trading prices (67.5/32.5).
- Assess the realizability of the estimated $100 million in annual pre-tax cost synergies within the projected 36-month timeframe.
- Monitor the outcome of the Tilray Special Meeting scheduled for April 16, 2021, as the transaction is contingent upon stockholder approval.